Fiduciary Duty Is NotExpendable Like a Hat

At the height of the economic downturn a few years ago, a Ten- nessee broker talked her client
into selling her troubled properties for

$10 to a firm the broker owned. Today,
the broker is barred from practicing
real estate, her license permanently
revoked. The broker’s wrongdoing?

She thought she could take her broker
hat off and replace it with her buyer hat
whenever she wanted. A Tennessee appellate court said she couldn’t do that.

In 2007, broker Donna Bobo
represented Shalah Smith in Smith’s

$60,000 purchase of a string of rental
properties. Soon thereafter, Smith
faced foreclosure on the properties
and came to Bobo for guidance. Bobo
advised Smith of three options: allow
the foreclosure, enter a short sale, or,
in order to avoid impacting her credit
record, quitclaim the property to Global
Investment Services, a limited liability
partnership that Bobo owned, for $10.

Smith chose the last option, and
signed the properties over to Global. In
their written agreement, Global agreed
to collect rent, maintain the property,
and pay the mortgages on time. If it
failed to do so, Global would convey the
properties back to Smith within 30 to

60 days. The mortgages and related
liabilities remained in Smith’s name.

Global failed to pay the mortgages in
a timely fashion, and Smith received notice that the properties were in default.

Once again facing foreclosure proceed-ings, Smith demanded that Bobo returnthe properties, per their agreement. ButBobo refused, and Smith filed a com-plaint with the Tennessee Real EstateCommission.

In proceedings, Bobo argued that,
although she was both a real estate
broker and a property manager for
Smith at various times, her actions were
not subject to the state’s Real Estate
Broker Act. That’s because, when
Smith quitclaimed the properties to
Bobo’s company, Bobo was acting as
a purchaser, not as Smith’s real estate
representative.

The commission rejected this argument, saying “equity will not tolerate
such a deal,” and permanently revoked
Bobo’s real estate license. The commission found Bobo had made false
representations to her client, induced
her client to enter into an unconscionable contract, and manipulated her client
for her own gain.

A relationship of trust between
broker and client, the court said in its
ruling, “once assumed, continues until
discharged either by operation of law,
by order of a tribunal, or pursuant to
a valid agreement of the parties.” In
other words, brokers cannot avoid their
fiduciary duties simply by claiming to
have switched from the broker hat to
the purchaser hat.

and Redfin—attract more than 61 million visitors to real estate websites each
month in the United States. The websites
of independent brokers and sales associates add millions more monthly views to
that total.

Against this background, it’s logical
to anticipate that a website devoted to
the sale of real estate could be found
sufficiently connected to physical places
to be considered a place of public accommodation subject to the ADA. While no
court has yet addressed whether stand-alone websites are subject to the ADA
requirements, it is foreseeable that this
will occur. Once it does, you can expect
consideration to be given to whether your
virtual tour is accessible to those with disabilities. To that end, your websites might
ultimately be required to provide closed
captioning for audio content and coding
that is compatible with web reading
software to provide access to users with
hearing and vision impairments.

With that in mind, it would be prudent to start looking at what it would
take to make your website accessible
to the visual and hearing impaired. Two
nonprofit organizations, the American
Foundation for the Blind and the National
Association of the Deaf, make resources
available to help you start your research
into website accessibility. Even though
there are no specific requirements in
place today, there could be tomorrow,
and taking action now could put you
ahead of the game.